Prudential to spin off United Kingdom and European business

Prudential has announced plans to demerge its UK & Europe business, M&G Prudential, as well as the sale of a £12.0 billion UK annuity portfolio to Rothesay Life.

The division of the group will see Prudential focus outside the United Kingdom on the U.S. and Asian markets.

Rating actions include a downgrade of The Prudential Assurance Company Ltd's (PAC) and Prudential's U.S. subsidiaries" (collectively Jackson) Insurer Financial Strength (IFS) Ratings to "AA-' from "AA".

Prudential PLC (LON:PRU) said it plans to demerge its M&G Prudential business and sell £12bn of its United Kingdom annuity portfolio as it revealed Asia continued to drive profit growth in 2017.

'One may assume the United Kingdom interests (M&G Prudential) will be less appealing to investors as the non-UK interests have experienced faster growth, ' says Russ Mould, investment director at AJ Bell.

It said it planned to demerge M&G Prudential into a separate company with a premium listing on the London Stock Exchange.

John Baines, a partner in Aon's Risk Settlement Group, also said, "This market development is the culmination of a long process and during that period it's pleasing that appetite for pension scheme transactions remained undiminished and pricing remained very attractive, even in the context of a mega deal in the market".

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The move is created to help Prudential focus on its lucrative Asian, US and African operations while giving M&G Prudential "more control" over its own business strategy and the way that it allocates capital.

"Looking forward, we believe we will be better able to focus on meeting our customers' rapidly evolving needs and to deliver long-term value to investors as two separate businesses", said Wells.

Coinciding with the demerger announcement is news that Prudential is releasing £1.1bn of capital from reinsuring £12bn of United Kingdom annuity assets with Rothesay Life.

Prudential will be able to focus on the "attractive returns and growth potential of its market-leading businesses in Asia and the US", he said. "M&G Prudential's proven investment capabilities and balance sheet management provide an excellent platform from which to serve the demand for comprehensive financial solutions".

In preparation for the United Kingdom demerger process, and to align the ownership of the Group's businesses with their operating structures, Prudential plc intends to transfer the legal ownership of its Hong Kong insurance subsidiaries from The Prudential Assurance Company Limited (M&G Prudential's United Kingdom regulated insurance entity) to Prudential Corporation Asia Limited, which is expected to complete by the end of 2019. Proceeds will be used to support the group's demerger.

Group debt will be rebalanced across the entities and will involve debt redemption and new issuance. Discussions have also commenced with our other key stakeholders, including rating agencies.

The transition to a Part VII transfer will see all of the underlying assets and policy liabilities transferred to Rothesay Life, subject to regulatory and court approval.

The transaction covers an annuity book containing roughly 400,000 policyholders, making this the largest transaction of its kind in the UK.

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